Global Procurement Spotlight: Mexico Faces Tariff Hikes Amid USMCA Renegotiations. May 06, 2025. Read More.

Global Category Intelligence

Q2 2025

ALERT -- Tariff Developments in North America and Impact

4 February 2025

Recent tariff-related developments involving the United States, Canada, and Mexico have emerged, carrying substantial implications for procurement and supply chain operations across various industries.

On February 1, 2025, the U.S. administration announced the imposition of 25% tariffs on imports from Mexico and Canada, effective immediately. These tariffs cover a wide range of goods, including automotive parts, agricultural products, and consumer electronics. This move, part of a broader strategy to address illegal immigration, fentanyl trafficking, and trade imbalances, has significant repercussions for procurement and supply chain operations across North America.

In response to the U.S. imposing tariffs, both Mexico and Canada had declared their intent to implement retaliatory tariffs on U.S. exports. However, following high-level discussions, the U.S. has agreed to delay the tariffs on Mexico for one month, with Mexico committing to enhance border security measures. As for Canada, there has been a development where the U.S. has agreed to pause the tariffs for at least 30 days, following discussions between U.S. President Donald Trump and Canadian Prime Minister Justin Trudeau. This pause on tariffs for Canada was confirmed by Trudeau on February 3, 2025, meaning the previously planned 25% tariff on Canadian imports is currently on hold.

Impact on Procurement

Procurement professionals now face a complex landscape. Products like vehicles, which frequently cross the U.S.-Canada or U.S.-Mexico borders multiple times during assembly, are particularly affected. With $202 billion in trade between these countries, the auto industry faces unprecedented cost increases. The chemicals industry, where Canada is a major trading partner for the U.S., might see disruptions in supply chains optimized for efficiency rather than tariff avoidance. This could lead to higher costs or delays in product delivery, necessitating a strategic pivot towards local sourcing or alternative international suppliers.

Supply Chain Disruptions

The interconnected nature of North American supply chains means that the tariffs could lead to bottlenecks at border crossings, increased logistics costs, and longer lead times. Freight rail, a significant conduit for goods moving between Canada and the U.S., faces potential rerouting or downsizing of shipments to avoid the new tariffs, which could disrupt the balance of trade and affect rail companies' operational planning and revenue.

Strategic Responses

Companies may engage in scenario planning to manage risks in response to these developments. This includes:

Diversifying suppliers: Businesses might consider expanding their supply base to include countries not affected by these tariffs.
Renegotiating contracts: Adjusting terms with current suppliers to absorb or share the cost increase.
Increasing domestic production: Where feasible, moving manufacturing back to the U.S. to bypass tariffs, though this comes with its own set of challenges, including capacity and cost.
Leveraging technology: More investment in supply chain visibility tools to forecast and respond to disruptions more effectively.

Long-term Implications

The long-term effects might involve a reshaping of North American trade dynamics. Canada and Mexico have both indicated retaliatory measures, which could lead to a tit-for-tat escalation, further complicating supply chain strategies. However, there's also a push towards negotiation, with hopes that diplomatic efforts might mitigate some of the tariff's harsher impacts.

The situation remains fluid. The potential for a prolonged trade dispute necessitates a strategic reevaluation of how goods are sourced, produced, and delivered across borders in North America.